Why do some retailers and department stores always seem to have sales on, no matter what time of year it is? Is it because they love their customers and want to give them the best price or is something else happening here?

When two like products are presented together, one will typically be seen by the individual as inferior to the other and similarly, the other will be seen as the superior. The exact positioning of the products is dependent on the cognitive bias that is set (anchored) by the individual. Depending on the type of person, the bias could be anchored towards price, value or brand.

In a book by psychologist, Barry Schwartz, he asks the question: How do you determine how much to spend on a suit? Schwartz suggests one way is to compare the price of one suit to another, which means using the other items as anchors, or standards. In a store that displays suits costing over $1,500, an $800 pinstripe suit may seem like a good buy. But in a store in which most of the suits costs less than $500, that same $800 suit might seem like an extravagance.

What we see here is this psychological heuristic influencing the way we assess probabilities and options. This means that those customer loving retailers aren’t trying to help us out in these hard times, they are trying to influence the way we make purchase decisions. By creating a superior option (similar product, with reduced price) they are guiding our decision process into purchasing the product they want us to buy.

Retailers don’t just use sales prices to create anchors, they can use similar products in different brands or even different models of the same product/brand.

Another example Schwartz gives is when a high-end catalog seller of mostly kitchen equipment and gourmet foods offered an automatic bread maker for $279. Sometime later, the catalog began to offer a larger capacity, deluxe version for $429. They didn’t sell too many of these expensive bread makers, but sales of the less expensive one almost doubled. With the expensive bread maker serving as an anchor, the $279 machine had become a bargain.

When setting prices for your own products, try and consider how each product will be anchored to the surrounding products. Is the anchor how big the product is? How loud it can go? How waterproof it is? Think about what people see as value and anchor the pricing around that.

Barry Schwartz, Behavioral Economics, buying decisions, choice, choice architecture, cognitive bias, consumer behavior, decision theory, decoy pricing, influence, positioning, price, pricing, psychological heuristic, psychology